You work hard to earn your money, so why shouldn’t you get the most out of each penny that you earn? If you’re keeping that extra money stashed in a bank savings account, you could be missing out. You should expect more from your money. Investing in a portfolio of short-term US Treasury Bonds may be the answer.
If you’ve been reading up on Evati’s Inspire blog, you already understand the difference between bank accounts and investment accounts. As explained in that article, banks do a great job of keeping your money safe, but that safety comes at an economic cost to you—the difference between the amount of interest your bank pays you and the amount of interest your bank collects from lending your money to other people.
There’s also another cost to keeping your money in a bank savings account: inflation. Unless your bank pays you interest equal to the rate of inflation, your money is losing value over time.
By investing that money in low-risk securities, like U.S. Treasuries, instead of leaving it in your bank savings account, you can reduce those costs, if not avoid them entirely. This article explains the simple economics behind it and shows you how to turn one penny in interest you might earn from your bank into twenty.
What is Inflation?
Inflation is the rate at which prices in an economy increase over time. As prices increase, a dollar does not have the same purchasing power it once had. If the cost of a package of ramen noodles increases from $0.25 to $0.33 over time, one dollar will purchase four packages initially but only three packages later. If your money is not growing at the same rate as inflation, then you will have less and less purchasing power with that same money over time.
Bank savings accounts pay you interest on the amounts you deposit. The interest rate is calculated as an annual percentage yield (“APY”), which is the rate of interest you can expect to earn in a year, including compounding over the course of the year, assuming you don’t make any further deposits to or withdrawals from the account. According to the Federal Deposit Insurance Corporation (“FDIC”), as of May 1, 2019, the national average savings account interest rate for deposits under $100,000 is 0.10%. Considering the usual inflation rate hovers around 2%, your savings account is slowly decreasing your purchasing power the longer you keep that money in the bank!
Expect More from Your Money
Investing in a portfolio of short-term US Treasury bonds can greatly improve your returns in the short run, while still providing a very safe place to keep your money. Short term US Treasury portfolios yield income through the maturity of the underlying bonds. “Yield” refers to the earnings generated and realized on an investment over a particular period of time and is expressed in terms of percentage based on the invested amount or on the current market value of the bond.
With a 2% rate of inflation, you’re losing ground to inflation every month if you keep your money in a bank savings account earning 0.10% interest. Investing in a portfolio of short-term US Treasury bonds with a current yield of 2% instead can help you keep inflation erosion at bay. While bank interest rates and yields on bond portfolios fluctuate over time, and there is always risk involved in investing, investing in short-term US Treasury bond portfolios may boost your savings without involving undue risk. That’s what can happen when you expect more from your money.
Understanding Your Options
A good first step in financial planning is to get a basic understanding of the available options. You may be shortchanging yourself by stashing your extra cash in your bank savings account. Investing in a low-risk portfolio of US Treasuries can provide higher short-term returns.
Evati offers a short-term US Treasury portfolio as an investment option to help manage your money more effectively and efficiently, which can help you realize your short-term and long-term financial goals. Expect more from your money.
Whatever your financial goals are, let Evati help you achieve them. Download the Evati app or click here and start down your path to financial wellness.